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States Launch a New Challenge to the ACA: Noncompliant Health Plans

In the wake of recent failures to repeal the Affordable Care Act, one state has decided to take matters into its own hands. Idaho recently announced a controversial plan to allow insurers to sell policies that do not comply with certain ACA requirements — a move that could set a precedent for other states. Proponents of Idaho’s plan say it will help to provide affordable health care options and stabilize the market. Others fear that, in addition to its questionable legality, the plan will only serve to increase premiums on the exchanges and provide substandard coverage for those who purchase these new, noncompliant plans.

On January 5, Idaho Governor C.L. “Butch” Otter issued an executive order directing the Idaho Department of Insurance to approve insurance plans that met all state-based requirements, even if they failed to pass muster under the ACA. Governor Otter’s order was highly critical of the ACA, calling it “overreaching, intrusive” and “infring[ing] on Idahoans’ freedoms.” Citing the “Trump Administration[’s] support for State-based solutions” and the repeal of the individual mandate “allowing citizens to purchase plans without being penalized if those plans do not meet all the []ACA criteria,” Governor Otter’s order delivered two mandates to the state’s Department of Insurance:

seek creative options that encourage and permit health insurance carriers to offer health plans that expand access for Idahoans by providing benefits and plan designs to meet consumer needs at lower costs than those now available

approve options that follow all State-based requirements, even if not all []ACA requirements are met, so long as the carrier offering the option also offers an exchange-certified alternative in Idaho.

The Department of Insurance acted swiftly following Governor Otter’s order, issuing a bulletin in late January that invited issuers to offer “state-based” health plans that disregard certain fundamental ACA requirements to keep premiums low. Most notably, the plans may cap annual medical spending and vary plan premiums based on an individual’s health history and status. The state-based plans also are relieved from providing certain essential health benefits mandated by the ACA.

Issuers offering these state-based plans are still required to offer an exchanged-certified, ACA-compliant health plan as a condition to offering a noncompliant plan. These noncompliant plans would comprise a single risk pool alongside marketplace plans. The bulletin does not indicate whether state-based plans would participate in the ACA risk adjustment program. Congressional democrats raised this issue in a letter to the newly appointed Secretary of the Department of Health and Human Services, Alex Azar, criticizing Idaho’s plan and asking for guidance on the legality of Idaho’s actions. If these state-based plans are subject to risk adjustment, then enrolling healthier members in these plans would trigger higher risk adjustment payments, which would limit the ability of issuers to reduce premiums in the new state plans.

While the state has acted quickly, issuers have been more cautious. So far only one issuer, Blue Cross of Idaho, has submitted state-based plans (i.e., ACA-noncompliant plans) for Department of Insurance approval. Blue Cross of Idaho, the largest issuer in the state, submitted five “Freedom Blue” plans for approval. These plans include an annual cap on spending of $1 million, and premiums vary based on the policyholder’s health status. One of the plans also provides no coverage for maternity care, an essential health benefit under the ACA.

Other issuers have expressed concerns. Regence BlueShield of Idaho remarked that the ACA is “still valid law, and we do not see how the guidance . . . fits within that framework.” Similarly, Pacific Source warned of “the potential for federal objections or fines and the impact that these plans could have on the ACA risk pool.” Blue Cross of Idaho, however, reports that it is “confident we have clear guidance from our local regulator” and that it has “really thought through the risk here as well as the opportunities.”

Insurers are not the only voices of concern opposing Idaho’s plan. On February 14, a group of 15 patient groups, including the American Heart Association and the March of Dimes, wrote a letter to Secretary Azar, urging him to weigh in on the legality of the Idaho plan. The groups worry that Idaho’s action:

would seriously injure Idaho patients and consumers and significantly destabilize Idaho’s entire health insurance market. Individuals and families who purchase these plans may not have insurance coverage for essential health services and would likely pay more out of pocket for the services that are covered — while older Americans and individuals with pre-existing conditions, because of premium surcharges, would likely pay more for less coverage. Further, older Americans could be charged up to five times the premiums for younger Americans — much more than the three-to-one limit in federal law. People with pre-existing conditions could be charged up to 50 percent on top of what they would otherwise pay. And a person who is both older and has a pre-existing condition could be charged premiums up to fifteen times more than a young, healthy American. Health care providers that care for patients with these substandard plans may find the plans won’t cover the bills, resulting in medical debt for patients or uncompensated care for providers.

To date, HHS has not weighed in on the legality of Idaho’s actions. Secretary Azar was asked at a Senate Finance Committee hearing on February 15 about Idaho’s plans to introduce “junk” plans (in the words of a democratic senator) in defiance of the ACA. Azar declined to respond because his office had not yet received any waiver requests that would require agency action, and had only reviewed media reports about Idaho’s plans. He remarked that he did not want “to prematurely be involved before there’s even a matter in controversy at the state level.” He did, however, recognize “the need of the department to be engaged” on the issue.

Idaho’s Insurance Director, Dean Cameron, however, indicated that he spoke about the plan with Azar’s predecessor, who asked questions about the plans, but did not give Idaho a “red light” in proceeding with its course of action. According to Cameron, “we know that our role under the ACA is to substantially enforce the law. We believe that we are meeting all of the conditions of substantially enforcing the law. We don’t believe there is any evidence to show that we aren’t. ACA plans will be available, and consumers who wish to purchase ACA plans will have that opportunity and privilege.”

While there has been no HHS guidance to date, it may be forthcoming. Azar, Otter and Cameron were scheduled to meet on February 24 to discuss Idaho’s plan directly. Any guidance from HHS will be important as it may dictate whether and how other states may follow suit. In fact, Iowa has already introduced legislation that, if passed, would exempt certain plans from ACA requirements. According to Idaho officials, dozens of other states have been in contact to discuss the plan already, and the “door is open for states to pursue our own reasonable solutions. We believe Idaho will lead the way in states taking back control of their Insurance markets.”